Company Delivers 34% Net Sales Growth in
the Quarter;
Cash Operating Income Increases 63% to
$11.4 Million;
Increases 2012 Profit
Outlook
Smart Balance, Inc. (Nasdaq:SMBL) today announced its financial
results for the fourth quarter and year ended December 31, 2011.
For the fourth quarter of 2011, net sales increased 33.7% to $83.9
million, and cash operating income increased 62.9% to $11.4
million. Earnings per share were $0.03, versus $0.01 last
year. Excluding certain non-cash and one-time items, and using
a normalized tax rate of 42.3%, earnings per share for the fourth
quarter improved to $0.07.
Regarding its 2012 outlook, the Company continues to expect net
sales in the $320 million to $330 million range, and gross margin
in the 42% to 44% range. However, the Company increased its
cash operating income outlook to the $46 million to $48 million
range, from $44 million to $47 million.
Commenting on the results, Chairman and Chief Executive Officer
Stephen Hughes stated, "We are pleased with our overall results
this quarter. In the quarter our three growth platforms
- Glutino, Earth Balance and Smart Balance Milk – reported strong
consumption trends, and our core Smart Balance spreads and grocery
business had solid top-line and strong bottom-line results."
Commenting further on the quarter Mr. Hughes stated, "While the
addition of Glutino contributed a significant portion of our sales
growth in the quarter, we had a number of positive developments in
our base business this quarter, which experienced sales growth of
approximately 10%. Our spreads strategy performed well,
reporting approximately 9% sales growth, as the overall spreads
category continued to benefit from the price increases initiated
earlier in the year. Earth Balance continues to perform well,
with 25% sales growth. Finally, our Smart Balance Milk
national distribution efforts resulted in sales growth of
31%."
Regarding Glutino, Mr. Hughes stated, "In the quarter,
sell-through of Glutino sales at all retail channels, reported
approximately 20% growth on average. Since the acquisition, our
teams have identified opportunities within product development,
sales and marketing, and supply chain efficiencies. In
2012 we expect to see the benefits of these efforts through product
and packaging innovation, increased distribution gains and margin
improvement for Glutino."
Commenting on its new product launch, Smart Balance Spreadable
Butter, Mr. Hughes added, "I am pleased to announce the launch of a
new product line which will extend the Smart Balance portfolio and
its heart health leadership into a new category. In 1996, we
launched a better spread, in 2010 we introduced a better milk, and
in March of 2012 we will launch a better butter. Smart Balance
will compete in the fastest growing segment in the spreads
category, spreadable butter, and will combine butter, canola oil,
extra virgin oil, and heart enhancers such as Omega 3 and Plant
Sterols, to provide consumers with a healthier, great tasting
butter. This launch expands our competitive set from the $1.3
billion spreads category to the $2.8 billion combined spread and
butter category."
2011 Fourth Quarter Results
Net sales in the fourth quarter of 2011 increased 33.7% to $83.9
million, compared to net sales of $62.8 million in the fourth
quarter of 2010. This performance primarily reflected the
acquisition of Glutino. In addition, the Company's base
business was positively impacted by higher selling prices,
partially offset by higher promotional spending and lower
volume.
In the spreads category, sales increased 9.3% driven by the
positive net impact of pricing activity in the category and volume
growth from Earth Balance®, offset by a volume decline from Smart
Balance® and Bestlife™. The Company's total spreads
dollar market share1 in the fourth quarter of 2011 declined 40
basis points versus year-ago to 13.8%. The decline in dollar
market share for the quarter was due primarily to the continued
overall consumer shift to value brands from premium brands in the
market.
Sales of Smart Balance® milk increased 31.2% in the quarter, due
to strong promotional calendar and incremental distribution gains
at retail. Smart Balance® milk is now sold in approximately
67% of the supermarkets in the U.S., and its market share in the
healthy premium milk segment, which consists of organic,
lactose-modified, soy, almond and enhanced varieties, was 2.4% in
the fourth quarter of 2011, up approximately 50 basis points versus
the year ago period.
Sales of the Company's grocery and other products in its
portfolio increased 6.3% versus the year-ago fourth quarter,
reflecting higher prices and volume increases of peanut butter,
offset by lower volume of popcorn and mayonnaise, and the
elimination of sour cream.
The Company's Earth Balance® portfolio continued to perform
well, registering a sales gain of 25.3% versus year-ago in the
fourth quarter. This gain was primarily driven by growth of
Earth Balance® spreads, including its recent launches of
MindfulMayo™ and Organic Coconut Spread, and soymilk in the natural
foods channel. Earth Balance® Spreads products have
continued to gain new distribution in the grocery channel.
Glutino represented approximately 24 points of the consolidated
net sales growth. When compared to the same period last year,
Glutino sales increased 5.8%. The growth in the quarter was
negatively impacted from the timing of the Company's bread
re-launch under its new partnership with the Genius™ brand. In
addition, Glutino sales were impacted by a change in the Company's
promotional strategy from off-invoice to performance-based; the
effect of which reduces inventory levels at its distributors in the
near-term but improves efficiency of trade spend in the
long-term. Glutino sales across its retail channels,
nevertheless, continue to be strong with average growth of
approximately 20% in the quarter.
Gross profit in the fourth quarter of 2011 was $36.4 million, or
43.3% of net sales, compared with gross profit of $28.1 million, or
44.7% of net sales in the fourth quarter of 2010. While higher
selling prices more than offset the impact of commodity costs,
the consolidation of Glutino, and the overall mix shift to
lower margin products in the base business resulted in lower gross
margin in the quarter.
Operating income was $6.6 million in the fourth quarter,
compared to operating income of $2.2 million in the fourth quarter
of 2010. Excluding one-time items, operating income increased
to $8.1 million in the fourth quarter compared to $3.2 million in
the year ago quarter. The one-time items for the fourth quarters of
2011 and 2010 represent severance charges of $1.5 million and net
restructuring charges of $1.0 million, respectively.
The improvement in operating performance was primarily the
result of higher net sales and gross profit, as well as lower
non-promotional marketing expenses, due to the planned shift in the
Company's overall marketing mix to trade promotions and coupons
(promotional expenses) and lower stock-based compensation
expense.
Cash operating income increased to $11.4 million in the fourth
quarter compared to $7.0 million in the prior year's quarter. The
table below provides a reconciliation of operating income to cash
operating income, a non-GAAP measure.
Reconciliation of Operating
Income to Cash Operating Income – Fourth Quarter |
|
|
|
$ in Millions |
2011 |
2010 |
|
|
|
Operating Income |
$6.6 |
$2.2 |
Less non-cash and one-time items : |
|
|
|
|
|
Stock-based compensation
expense |
0.8 |
2.5 |
Depreciation and
amortization |
2.5 |
1.3 |
One-time items |
1.5 |
1.0 |
Non-cash/one-time items |
4.8 |
4.8 |
|
|
|
Cash Operating Income |
$11.4 |
$7.0 |
Net income in the fourth quarter of 2011 was $1.6 million, or
$0.03 per share, compared with net income of $0.3 million, or $0.01
per share, in the year-ago quarter. Adjusting for one-time
items, and using a normalized effective tax rate of 42.3%, net
income in the fourth quarter of 2011 was $3.9 million, or $0.07 per
share, compared to $0.8 million, or $0.01 per share, in the
previous year period. In 2011 and 2010, the Company recorded
non-cash charges of $0.6 million and $0.1 million, respectively,
resulting from the forfeiture of certain stock options. In
addition, the Company recorded one-time items of $0.4 million in
both periods; representing severance charges in 2011 and
restructuring costs in 2010. The Company's effective tax rate
was 70.0% due primarily to the reduction of deferred tax assets on
certain forfeited stock options and the effect of certain
non-deductible acquisition costs associated with Glutino.
Reconciliation of Items
Affecting Net Income and Earnings Per Share (EPS) – Fourth
Quarter |
|
|
|
|
|
|
Net Income ($
Millions) |
EPS ($ Per share) |
|
2011 |
2010 |
2011 |
2010 |
|
|
|
|
|
Reported |
$ 1.6 |
$ 0.3 |
$ 0.03 |
$ 0.01 |
Less non-cash and one-time items: |
|
|
|
|
Forfeiture of certain stock
options |
0.6 |
0.1 |
0.01 |
-- |
One-time items |
0.4 |
0.4 |
0.01 |
-- |
Normalized tax rate
adjustment |
1.3 |
-- |
0.02 |
-- |
Non-cash/one-time items |
2.3 |
0.5 |
0.04 |
-- |
|
|
|
|
|
Adjusted |
$ 3.9 |
$ 0.8 |
$ 0.07 |
$ 0.01 |
2011 Full Year Results
Net sales for the year ended December 31, 2011 increased 13.4%
to $274.3 million compared to $242.0 million for 2010. The
increase was due primarily to the acquisition of Glutino in the
third quarter of 2011, pricing, growth in Earth Balance® spreads
and the national expansion of Smart Balance® milk.
Gross profit for 2011 increased 6.0% to $123.9 million, or 45.2%
of net sales, compared to $116.9 million in 2010, or 48.3% of
net sales. Excluded in cost of goods sold in the third quarter
of 2011 was a one-time $0.8 million charge, related to the Glutino
acquisition to reflect the estimated fair value of finished goods
inventory acquired. While higher selling prices more
than offset the impact of commodity costs, the consolidation of
Glutino, higher trade spend, and the overall mix shift to lower
margin products in the base business resulted in lower gross
margin.
Excluding one-time items, operating income was $29.7 million in
2011, compared to $16.7 million in 2010. Total one-time items
in 2011 were $6.0 million and represent $2.6 million in costs
related to the acquisition of Glutino, $1.5 million in severance
costs, $1.1 million related to a legal settlement charge and $0.8
million related to the inventory step up charge for
Glutino. Total one-time items in 2010 were $134.1 million and
represent $130.0 million non-cash goodwill impairment charge and a
net restructuring charge of $4.1 million.
Cash operating income increased to $42.3 million in 2011 from
$33.0 million in 2010 (see table for a reconciliation of operating
income (loss) to cash operating income, a non-GAAP measure).
Reconciliation of
Operating Income (Loss) to Cash Operating Income – Full Year |
|
|
|
$ in Millions |
2011 |
2010 |
|
|
|
Operating Income/(Loss) |
$ 23.7 |
$ (117.4) |
Less non-cash and one-time charges: |
|
|
|
|
|
Stock-based compensation
expense |
4.8 |
11.1 |
Depreciation and
amortization |
7.8 |
5.2 |
Goodwill impairment |
-- |
130.0 |
One-time items |
6.0 |
4.1 |
Non-cash/one-time charges |
18.6 |
150.4 |
|
|
|
Cash Operating Income |
$ 42.3 |
$ 33.0 |
Adjusting both years for the items discussed above, and using a
normalized tax rate of 40.7% for 2011, net income in 2011 was $15.7
million or $0.26 per share compared with $6.7 million or $0.11 per
share for 2010. In addition, the Company's effective tax rate for
the year was 53.6% primarily due to the reduction of deferred tax
assets on certain forfeited stock options and the effect of certain
non-deductible acquisition costs associated with Glutino.
Reconciliation of Items
Affecting Net Income (Loss) and Earnings Per Share (EPS) – Full
Year |
|
|
|
|
|
|
Net Income (Loss)
($Millions) |
EPS ($ Per share) |
|
2011 |
2010 |
2011 |
2010 |
|
|
|
|
|
Reported |
$ 9.7 |
$ (128.2) |
$0.16 |
$ (2.08) |
Less non-cash and one-time items: |
|
|
|
|
Goodwill impairment |
-- |
130.0 |
-- |
2.11 |
Forfeiture of certain stock
options |
1.9 |
2.5 |
0.04 |
0.04 |
One-time items |
2.8 |
2.4 |
0.05 |
0.04 |
Normalized tax rate
adjustment |
1.3 |
-- |
0.01 |
-- |
Non-cash/one-time items |
6.0 |
134.9 |
0.10 |
2.19 |
|
|
|
|
|
Adjusted |
$ 15.7 |
$ 6.7 |
$0.26 |
$0.11 |
2012 Outlook
The Company raised its 2012 outlook initially provided on
November 3, 2011. While the Company continues to expect net
sales in the $320 million to $330 million range, and gross margin
in the 42% to 44% range, it modestly increased its cash operating
income outlook to the $46 million to $48 million range, from $44
million to $47 million.
Commenting on the outlook for 2012, Mr. Hughes stated, "Our
priorities for 2012 are to accelerate growth and improve gross
margins for Glutino, maintain the strong growth experienced in the
Earth Balance brand, and continue to grow the Smart Balance®
enhanced milk business, all the while maintaining strong
profitability in the spreads business."
The Company provided the following specifics regarding its
outlook for 2012:
- The Company expects net sales in 2012 to grow in the 17% to 20%
percentage range versus 2011 net sales of $274.3 million. The
Company expects growth to be driven by the inclusion of Glutino on
a full year basis, continued growth in Earth Balance and increased
volume growth in milk. In addition, the Company expects its
spreads business to grow in the low single digit range, driven by
the benefit of the price increase it implemented in 2011, and
innovation with the launch of Spreadable Butter.
- Gross profit margin for the year is expected to be in the 42%
to 44% range as the full year inclusion of Glutino will impact
overall gross margin. The Company expects gross profit margin
to be higher in the back half of the year, compared to the first
half of the year, as Glutino supply chain efficiencies are expected
to be realized later in the year.
- 2012 stock based compensation expense is expected to be
approximately $7.5 million in 2012 and $6.5 million in 2013. The
increase in stock based compensation expense is primarily related
to the recently announced grants awarded to the executive team.
- Capital expenditures in 2012 are expected to be approximately
$6.5 million compared to $4.8 million in 2011.
- Total depreciation & amortization is expected to be
approximately $10.5 million in 2012 compared to $7.8 million in
2011.
- Interest expense is estimated to be $4.5 million, compared to
$3.6 million in 2011, reflecting a full year of increased debt and
related interest rates resulting from the Glutino acquisition.
- The company's tax rate is expected to be approximately 40% in
2012.
Footnotes
1 All references to market share are based on U.S. mass-market
dollar volume according to The Nielsen Company (an independent
research entity) for the 12-week period ending December 24, 2011,
unless otherwise noted.
Forward-looking Statements
Statements made in this press release that are not historical
facts, including statements about the Company's plans, strategies,
beliefs and expectations, are forward-looking and subject to the
safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. These statements may include use of the words
"expect", "anticipate", "plan", "intend", "project", "may",
"believe" and similar expressions. Forward-looking statements
speak only as of the date they are made, and, except for the
Company's ongoing obligations under the U.S. federal securities
laws, the Company undertakes no obligation to publicly update any
forward-looking statement, whether to reflect actual results of
operations, changes in financial condition, changes in general
economic or business conditions, changes in estimates, expectations
or assumptions, or circumstances or events arising after the
issuance of this press release. Actual results may differ
materially from such forward-looking statements for a number of
reasons, including those risks and uncertainties set forth in the
Company's filings with the SEC and the Company's ability to:
- maintain and grow those revenues derived from our Smart
Balance® buttery spread products from which we generate a
substantial portion of our revenues;
- maintain margins during periods of commodity cost
fluctuations;
- introduce and expand distribution of our new products;
- meet marketing and infrastructure needs:
- respond to changes in consumer demand;
- respond to adverse publicity affecting the Company or
industry;
- maintain our performance during difficult economic
conditions;
- comply with regulatory requirements;
- maintain existing relationships with and secure new
customers;
- continue to rely on third party distributors, manufacturers and
suppliers;
- successfully integrate and operate the Glutino business
and realize the expected benefits of the Glutino acquisition;
- operate outside of the U.S.;
- successfully maintain relationships with the co-packers for our
Glutino products;
- grow net sales in a competitive environment and with
increasingly price sensitive consumers; and
- maintain volume in light of price increases stemming from rises
in commodity costs.
Non-GAAP Financial Measures
The Company reports its financial results in accordance with
accounting principles generally accepted in the United States
("GAAP").
The Company uses the terms "cash operating income" and "net
income and earnings per share (EPS) excluding non-cash and one-time
charges" as non-GAAP measures. The Company believes that these
measures better explain its profitability and performance
consistent with the way the investor and securities analysts
evaluate our Company in the competitive environment in which we
operate. Cash operating income is defined as operating income
excluding non-cash charges and credits. Generally, non-cash
charges would include stock-based compensation expense,
depreciation and amortization of intangibles. With respect to
2010 and 2011 financial results, cash operating income was
calculated excluding one-time charges for restructuring activities
incurred in 2010 and one-time severance charges incurred
in2011. The Company believes that the exclusion of both
non-cash and one-time charges, provide a better reflection of
the operating profitability of the Company, and strongly complement
the Company's planning and forecasting models used in providing
investors and securities analysts with important supplemental
information regarding the Company's underlying profitability and
operating performance. However, non-GAAP financial measures
should be viewed in addition to, and not as an alternative for, the
company's results prepared in accordance with GAAP. In
addition, the non-GAAP measures the Company uses may differ from
non-GAAP measures used by other companies. We have included in this
press release reconciliations of cash operating income to operating
income and of net income and EPS excluding non-cash and one-time
items to net income and EPS, in each case as calculated in
accordance with GAAP.
About Smart Balance, Inc. Smart Balance, Inc.
(Nasdaq:SMBL) is committed to providing superior tasting,
solution-driven products in every category it enters. The
company's health and wellness platform consists of four brands that
target specific consumer needs: Smart Balance for heart
healthier diets; Glutino for gluten-free diets; Earth Balance for
plant-based diets; and Bestlife for weight management. The
company markets the Smart Balance line of products, which avoids
trans-fats naturally and balances fats and/or reduces saturated
fats, such as Smart Balance® Buttery Spreads and Enhanced
Milks. The company's Glutino brand is a trusted pioneer
and leader in the gluten-free category, with a wide variety of
great-tasting gluten-free foods consumers trust across a number of
product categories, such as Glutino® Pretzel Twists and Breakfast
Bars. The company markets the Earth Balance line of
non-GMO plant-based products, which include Earth Balance® Buttery
Spreads, Nut Butters and Soy Milks. The company also markets
weight management products under the Bestlife brand,
which include Bestlife™ Buttery Spreads and Sticks. For
more information about Smart Balance, Inc., please visit
www.smartbalance.com.
SMART BALANCE, INC. AND
SUBSIDIARY |
Consolidated Balance
Sheets |
(in thousands, except
share and per share data) |
|
|
|
|
December 31, |
December 31, |
|
2011 |
2010 |
Assets |
|
|
Current assets: |
|
|
Cash and cash equivalents |
$ 7,959 |
$ 3,840 |
Accounts receivable, net of
allowance of: $343 (2011) and $261 (2010) |
20,030 |
12,960 |
Accounts
receivable – other |
1,124 |
755 |
Inventories |
15,698 |
7,949 |
Prepaid taxes |
981 |
— |
Prepaid expenses and other
assets |
2,149 |
2,651 |
Deferred tax asset |
5,299 |
2,320 |
Total current assets |
53,240 |
30,475 |
Property and equipment, net |
13,804 |
5,378 |
Other assets: |
|
|
Goodwill |
266,598 |
248,912 |
Intangible assets, net |
183,822 |
150,017 |
Deferred costs, net |
2,690 |
1,467 |
Other assets |
1,478 |
2,154 |
Total other assets |
454,588 |
402,550 |
Total assets |
$ 521,632 |
$ 438,403 |
Liabilities and Stockholders'
Equity |
|
|
Current liabilities: |
|
|
Accounts payable and accrued
expenses |
$ 40,358 |
$ 23,481 |
Income taxes payable |
217 |
457 |
Current portion of long term
debt |
9,150 |
5,000 |
Total current liabilities |
49,725 |
28,938 |
Long-term debt |
93,815 |
44,000 |
Deferred tax liability |
51,474 |
44,165 |
Contract payable |
4,125 |
5,500 |
Other liabilities |
877 |
2,301 |
Total liabilities |
200,016 |
124,904 |
|
|
|
Commitment and contingencies |
|
|
Stockholders' equity: |
|
|
Convertible Preferred stock,
$.0001 par value, 50,000,000 shares authorized; |
— |
— |
Common stock, $.0001 par value,
250,000,000 shares authorized; 62,630,683 (2011 and 2010)
issued and 58,940,020 and 59,999,832 outstanding in 2011 and 2010,
respectively |
6 |
6 |
Additional paid in capital |
539,432 |
534,568 |
Accumulated deficit |
(200,967) |
(210,627) |
Accumulated other comprehensive
income (loss), net of tax |
(1,260) |
— |
Treasury stock at cost
(3,690,663 and 2,630,851 shares in 2011 and 2010,
respectively) |
(15,595) |
(10,448) |
Total stockholders' equity |
321,616 |
313,499 |
Total liabilities and stockholders'
equity |
$ 521,632 |
$ 438,403 |
|
SMART BALANCE, INC. AND
SUBSIDIARY |
Consolidated Statements
of Operations and Comprehensive Income |
(In thousands, except
share and per share data) |
|
|
|
|
|
|
Three months |
Three months |
Twelve Months |
Twelve Months |
|
ended |
ended |
ended |
ended |
|
December 31,
2011 |
December 31,
2010 |
December 31,
2011 |
December 31,
2010 |
|
|
|
|
|
Net sales |
$83,934 |
$62,759 |
$274,337 |
$241,967 |
Cost of goods sold |
47,574 |
34,684 |
151,198 |
125,131 |
Gross profit |
36,360 |
28,075 |
123,139 |
116,836 |
|
|
|
|
|
Operating expenses: |
|
|
|
|
Marketing |
8,269 |
9,902 |
26,606 |
40,155 |
Selling |
6,999 |
5,155 |
23,208 |
19,769 |
General and
administrative |
14,535 |
10,875 |
49,648 |
44,403 |
Goodwill impairment |
-- |
-- |
-- |
130,000 |
Total operating
expenses |
29,803 |
25,932 |
99,462 |
234,327 |
Operating income (loss) |
6,557 |
2,143 |
23,677 |
(117,491) |
|
|
|
|
|
Other income (expense): |
|
|
|
|
Interest income |
1 |
-- |
1 |
-- |
Interest expense |
(1,228) |
(867) |
(3,612) |
(3,420) |
Other income (expense),
net |
143 |
(82) |
766 |
(444) |
Total other income
(expense) |
(1,084) |
(949) |
(2,845) |
(3,864) |
Income (loss) before income taxes |
5,473 |
1,194 |
20,832 |
(121,355) |
Provision for income taxes |
3,828 |
857 |
11,172 |
6,806 |
Net income (loss) |
$1,645 |
$337 |
$9,660 |
$ (128,161) |
|
|
|
|
|
Income (loss) per share: |
|
|
|
|
Basic |
$0.03 |
$0.01 |
$0.16 |
$ (2.08) |
Diluted |
$0.03 |
$0.01 |
$0.16 |
$ (2.08) |
Weighted average shares outstanding: |
|
|
|
|
Basic |
58,940,020 |
60,447,367 |
59,256,228 |
61,665,824 |
Diluted |
59,120,714 |
60,447,367 |
59,284,978 |
61,665,824 |
Other comprehensive income (loss): |
|
|
|
|
Foreign currency
translation adjustment |
169 |
-- |
(1,260) |
-- |
Other comprehensive
income (loss) |
169 |
-- |
(1,260) |
-- |
Comprehensive income (loss) |
$1,814 |
$337 |
$8,400 |
$ (128,161) |
CONTACT: Carole Buyers, CFA
Vice President Investor Relations & Business Development
Smart Balance, Inc.
cbuyers@smartbalance.com
303-652-0521 x152
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